Executive Authority: Enacting the Budget, Keeping It Balanced
By Robert B. Ward
Deputy Director/Director of Fiscal Studies, the Rockefeller Institute of Government
Governor David Paterson’s final budget demonstrates more clearly than ever the extraordinary power New York’s chief executive can wield in adoption of the annual fiscal plan. There’s a good chance his remaining six months in office will reveal, once again, the limitations a governor faces in trying to keep the plan balanced.
As action on this year’s budget neared an end, Governor Paterson was directing the Legislature’s agenda with an exercise in executive authority never contemplated — or at least never used — by any of his predecessors. Each of the four who came immediately before him — Governors Spitzer, Pataki, Cuomo and Carey — searched for ways to achieve budgets that were both timely and balanced. All presided over fiscal plans that were adopted late, fell out of balance or both.
The Paterson precedent was to use temporary funding extenders — essential for keeping government operating once a new fiscal year has begun without a budget in place — to advance key elements of his full-year fiscal plan. Article VII of the state Constitution provides that, until it acts on the governor’s original appropriation bills, the Legislature may not consider any other appropriations unless the governor certifies the necessity of such legislation. Along with the Court of Appeals’ 2004 ruling in the case of Silver v. Pataki, this provision is interpreted to mean that the Legislature may not amend temporary budget extenders.
Until almost three months into the fiscal year, legislators were resisting action on the Governor’s original budget bills because they opposed some of the policy proposals he included in those bills. That left lawmakers only two choices: Enacting the governor’s temporary proposals unchanged, or taking no action and shutting down any governmental operations for which funding is not in place.
Maintaining its independent role in shaping the budget is one of the Legislature’s highest institutional priorities. Thus, lawmakers will look for ways to avoid this year’s Hobson’s choice in the future. The easiest path may be to negotiate and adopt a budget before the end of the fiscal year.
In short, after three decades of recurring late budgets, the Paterson precedent may make it much easier for future governors to ensure action on time.
Yet timeliness is one thing, while authority to maintain real budget balance is another. There, the power of New York’s governor comes up short.
If a gap between revenues and spending develops later this fiscal year, Governor Paterson — or his successor who will take office next January 1 — will have sharply limited legal authority to solve the problem.
Recent history is instructive. At this time one year ago, state revenues were falling sharply below projections. Governor Paterson asked the Legislature to enact major changes in the budget adopted just weeks earlier. Lawmakers did not respond for six months. They ultimately approved only some of the changes the governor requested, leaving a big budget hole unresolved.
Under longstanding practice in Albany, the governor can reduce state agency operations expenditures — roughly a quarter of the total — on his own authority. Medicaid, aid to public schools and other payments to local governments are off limits.
So the steps Governor Paterson was able to take on his own to reduce last year’s imbalance — cuts in executive agencies totaling more than $500 million — weren’t nearly enough. The state ended the last fiscal year on March 31 by rolling more than $2 billion in liabilities into the current year. That, of course, made this year’s problem worse.
In other states, the picture would have been quite different.
Take Massachusetts. Governor Deval Patrick has the authority to withhold appropriated assistance for local governments and schools, along with agency operations funding. Governor Patrick did exactly that in 2009 — reducing budget allotments by $887 million, including $120 million in aid to cities and towns.
Maryland law allows the governor to limit Medicaid appropriations along with those for state agencies by up to 25 percent, on agreement of the Board of Public Works (which includes the state comptroller and the treasurer). With no action by the state’s legislature needed, post-budget reductions last year totaled a record $957 million. That’s the equivalent of roughly $3.5 billion in a budget the size of New York’s.
Across the country, states can expect more frequent budget gaps in coming years as baseline spending outpaces revenue. In New York, the risk of unexpected gaps is particularly high because tax collections are increasingly volatile and hard to predict. The governor’s Budget Division reports that its errors in revenue projections rose from an annual average of 2.4 percent in the late 1990s to 4.2 percent from 2002 through 2007.
The single biggest reason for larger errors is New York’s increasing reliance on personal income taxes — especially those on higher-income earners whose bonuses and capital gains rise and fall sharply with the economy. While the typical state relies on income taxes for one-third of revenue, in the Empire State the figure is closer to 60 percent. Recent increases in tax rates for high-income earners make the volatility risk even worse, according to the governor’s Budget Division. 
And the 2010-11 plan nearing completion at the Capitol will include significant revenues that are, to say the least, open to question. For example, New York is counting on $1 billion in additional federal funding for Medicaid, but congressional action increasingly appears unlikely. Assumed revenues from tobacco taxes and projected savings from the state’s workforce are among other major budget-balancing items that may or may not materialize.
One way to strengthen Albany’s response to future budget gaps would be to give New York’s governor the same broad impoundment powers as executives in many other states. Governor Paterson, Lieutenant Governor Richard Ravitch and Assembly Speaker Sheldon Silver have proposed varying approaches to doing just that.
Although both the Senate and Assembly majorities announced broad budget-reform proposals earlier this year, it’s unclear whether the Legislature will take up reforms to the budget process before the session ends. The issue of resolving midyear gaps will not go away, however — and if there is no action this year, it seems likely a future Legislature (or a constitutional convention) will consider potential reforms. In addition to broadening the governor’s power to deal with midyear imbalances, such reforms could include requiring larger reserves and certification of budgetary balance throughout the year.
Massachusetts, Maryland, Minnesota, Ohio and Oregon are among the states whose impoundment provisions could serve as models for New York to consider. These other states are not especially conservative jurisdictions. Rather, what sets them apart from New York is a political culture that values careful budgeting.
They recognize that budget balance isn’t just something for accountants to worry about. Instead, it’s a means of assuring that vital public services are not suddenly disrupted — or taxes increased — because the treasury runs dry.
Chronic fiscal crises degrade the quality, and drive up the cost, of government services. New York’s state parks have been closed and reopened, tax refunds delayed, nonprofit service providers forced to scramble to meet payrolls, taxes and state-sponsored gambling activity increased. Thoughtful planning to modernize and enhance public schools, health care, transportation — you name it — is often eliminated as elected leaders and state agencies lurch from one crisis to another.
More than 80 years ago, Governor Al Smith and other progressive leaders expanded the chief executive’s ability to provide leadership in dealing with the increasingly complicated problems then confronting state governments. The 21st century brings even bigger challenges. It may be time to build on Smith’s legacy.